Fifth Ave. Coach Lines, Inc., In re
| Decision Date | 07 July 1966 |
| Parties | , 219 N.E.2d 410 In re FIFTH AVENUE COACH LINES, INC. In the Matter of the City of New York, Respondent-Appellant, Relative toAcquiring Title to Property in the Boroughs of Manhattan and Queens. FifthAvenue Coach Lines, Inc., et al., Appellants-Respondents. (ConsolidatedProceedings.) |
| Court | New York Court of Appeals Court of Appeals |
Milton S. Gould, Roy M. Cohn, Bernard D. Fischman, Michael Leschnitzer, Stuart Silfen, New York City, and Frank Polestino, Jamaica, for appellants-respondents.
J. Lee Rankin, Corporation Counsel (Morris Handel, Morris Einhorn and Milton H. Harris, New York City, of counsel), for respondent-appellant.
The only issue presented on this appeal which calls for a modification is the reliance of the courts below on erroneous principles of law regarding the evaluation of the condemnees' intangible property. The theory relied upon is unrealistic, resulting in the denial of the just compensation to which claimants are entitled under the Constitution. The present award is sufficient only as compensation for the value of the tangible property taken.
The problems raised in this condemnation proceeding are difficult and to a degree unique. In this era of spiraling inflation such proceedings will continually reoccur since it is beyond the resources of private enterprise to provide mass transportation at modest rates, dictated by political exigencies and confiscatory as far as the equity in the business is concerned. However, 'It does not rest with the public, taking the property through congress or the legislature, its representative, to say what compensation shall be paid, or even what shall be the rule of compensation.' (Monongahela Nav. Co. v. United States, 148 U.S. 312, 327, 13 S.Ct. 622, 626, 37 L.Ed. 463 (1893); Railway Steel Spring Co. v. Chicago & E.I.R. Co., 261 F. 690 (U.S.Dist.Ct., N.D., Ill., 1919); Matter of City of New York, 190 N.Y. 350, 353, 83 N.E. 299, 300, 16 L.R.A.,N.S., 335 (1907).) However laudable the political motivation is in depriving claimants of their transportation system, they must be fully compensated therefor. In Matter of New York Edison Co. v. Maltbie, 244 App.Div. 436, 442, 279 N.Y.S. 949, 955 (3d Dept., 1935) the court stated:
The right to a reasonable fare is part of all franchise contracts. (People ex rel. City of New York v. Nixon, 229 N.Y. 356, 128 N.E. 245 (1920).) As this court stated in People ex rel. Kings County Light. Co. v. Willcox, 210 N.Y. 479, 491, 104 N.E. 911, 915, 51 L.R.A.,N.S., 1 (1914): 'The right to limit the corporation to a fair return fixed by public authority necessarily involves the correlative right in the corporation to be assured of that fair return during all the time that its capital is employed in the public service.' In Matter of Queens-Nassau Tr. Lines v. Maltbie, 186 Misc. 424, 61 N.Y.S.2d 81 (Sup.Ct.Albany County, 1946), affd. 271 App.Div. 81, 63 N.Y.S.2d 712 (3d Dept., 1946), affd. without opn. 296 N.Y. 893, 894, 896, 898, 899, 901, 72 N.E.2d 618, 619, 620, 621, 622 (1947), the court held that the Public Service Commission had jurisdiction over omnibus rates and accordingly was bound to permit claimants to charge a reasonable and compensatory fare notwithstanding any contrary provisions contained in the franchise agreements. The predecessors of claimants herein were parties to Maltbie and the franchise contracts herein were among those there in issue. Thus fare increases were granted to claimants by the Public Service Commission in 1948 and 1949. The Public Service Commission stated in Matter of Lester T. Doyle, Trustee (11 PUR 3d 491, 497--498 (N.Y.Pub.Serv.Comm., 1956)):
After the rate regulating authority was transferred to the city the Board of Estimate granted the following increases in fares to claimants:
7/1/50 New York City Omnibus 7 cents to 8 cents
7/1/50 Surface Transportation 8 cents to 10 cents
1/1/51 New York City Omnibus 8 cents to 10 cents
1/1/54 Surface Transportation 10 cents to 13 cents
1/1/54 Fifth Avenue 12 cents to 15 cents
1/1/54 New York City Omnibus 10 cents to 13 cents
1/1/56 Surface Transportation 13 cents to 15 cents
1/1/56 New York City Omnibus 13 cents to 15 cents
Hence it is clear that the statute did not constitutionally deprive claimants of their previously existing right to reasonable fares, but placed the duty to respect such rights upon the city acting either as a regulatory body or as a contracting party.
The claimants operated the nation's two largest privately owned transit systems. Fifth operated 28 routes in Manhattan for an annual total of 22,000,000 revenue bus miles. Surface operated 49 routes in Manhattan and The Bronx for over 24,000,000 revenue bus miles per year. Surface provided all the surface transportation by public carrier in The Bronx except for a minor Transit Authority service over the Whitestone Bridge. Fifth provided virtually all the franchised surface transit in Manhattan. Each working day of the year they transported about 1,250,000 passengers. The transit system served a major portion of the largest city and the best transit market in the United States. To some degree this bountiful market results from the fact that the per capital ownership of automobiles in New York County and Bronx County, the two areas served by claimants, is lower than in any other major urban county in the United States. It follows, therefore, that the respondent took the claimants' transit systems as going concerns and has operated them as such ever since. The maintenance by the city of this transportation service demonstrates that the bus system is essential and complementary to, not competitive with, the overcrowded, inadequate subway system.
In fixing the award at $30,353,542 the trial court used reproduction cost new less depreciation, but the court improperly rejected the evidence proffered by the claimants as to the value of the intangible going concern assets, that is, the component of value in the business which in addition to the value of the tangible assets reflects an efficient operation. In disallowing pensions, mortgages, Federal and city taxes, equipment and bond indebtedness, all current obligations in excess of $19,000,000 the trial court rreated the take over as one of a going concern. These of course, are the usual debts which are paid for out of the earnings of a going concern and similar debts are normally incurred by the going concern in the course of its continuing business. But there is a basic inconsistency in then applying a principle that no payment for seized going concern assets should be made when the continuance of earnings is shut off by condemnation. The reason given below is that where there is no earning capacity even if only because the rates permitted to be charged are unreasonably low, there is no going concern value. However, in all the cases supporting the view that where there is no earning capacity there is no going concern value, the condemnees were inherently incapable of probitable operation because of the economic law of diminishing returns or inefficient management. Here had the city not suppressed the earning power of these transit lines by denying them, for political reasons, the right to charge an increased and reasonable fare, they would have had large gains in gross revenues and greater gains in net profits as going concerns at the time of condemnation.
This record shows that every recent rise in fare on claimants' lines resulted in increases in profits even while claimants experienced a slight decline in passengers carried. The general experience in the transit industry in the United States has followed a pattern that for every 10% Increase in fare there is only a 3% Loss in traffic. Accordingly the increase in revenue attributable to a fare rise far outbalances the decrease in revenue attributable to a concomitant passenger loss. Indeed the Transit Authority stated with respect to this nationwide pattern that 'the average losses based on experiences in smaller cities are likely to be higher than might be expected in N. Y. City where the automobile is probably not as serious a competitor.'
Thus the record demonstrates claimants' capability for profitable operations under reasonable rates and they are, therefore, entitled to going concern value (Kimball Laundry Co. v. United States, 338 U.S. 1, 19, 69 S.Ct. 1434, 93 L.Ed. 1765 (1949); National Waterworks Co. v. Kansas City, 62 F. 853, 27 L.R.A. 827 (C.C.A.8th, 1894); People ex rel. Kings County Light. Co. v. Willcox, 210 N.Y. 479, 104 N.E. 911, supra (1914)).
The measure of value in this case is the cost of putting the entire transit systems together new plus all improvements, tangible and intangible, less depreciation. The cost of organizing and systematizing an enterprise in these days is many times the cost of a half a century ago. Consequently, the going...
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